Risk Management: Managing Risk in the Restaurant Industry

July 16, 2023
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Most businesses are prone to risk, especially those that are in dynamic industries such as the food and beverage industry. To prepare for restaurant success, it’s best to understand the risk management definition and have proper risk management tactics in place.

Every business will experience risk, but it’s up to the business owner and restaurant manager to plan ahead and strategically deal with them. The restaurant industry is constantly evolving which makes it a tough industry for retailers, suppliers, and manufacturers to be in. 

Proper risk management practices will allow your business to thrive and grow despite unexpected problems that arise. This guide covers the risk management definition and insight into how to deal with risk for your restaurant business. 

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Risk Management Definition

The risk management definition is the process of identifying, assessing, and controlling potential threats that may affect a business’s capital and earnings. These threats may come from financial uncertainties, technology problems, legal liabilities, accidents, and strategic management errors. 

Understanding the risk management definition is important, but it’s not enough to properly deal with the risks themselves. Developing a risk management plan will allow you to work towards facing and avoiding such problems if they arise.

Restaurant Industry Risks

Despite how profitable the food and beverage industry is and how fast it’s growing, not all businesses end up successful. It’s possible that some risks will cause the business to struggle. Examples include having compliance issues or an inefficient purchase order or procurement process

It’s possible to revive a struggling food and beverage business. To do this, you may need some operational and financial restructuring. However, it’s important to first identify the cause of the problem and potential risks. 

Common risks in the restaurant industry include:

  • Incorrect product design development 
  • Changes in consumer tastes
  • Unhealthy food safety practices
  • Evolving demographic trends
  • Consumer safety risks
  • 3PL risks involving transport agencies, retailers, and middlemen
  • Contamination and poisoning of ingredients and finished goods
  • Product information misrepresentation
  • Compromised ingredient and material quality

Understanding the nature of the risk is a crucial factor in properly mitigating the risk. To do this, businesses will have to equip themselves with the necessary resources. 

How Technology Helps Manage Risks

Technology is continuously evolving and taking over most industries. This includes the food and beverage industry as well as many restaurants. 

More and more restaurants are paying attention to current restaurant technology trends and investing in restaurant technologies. With restaurant technology, they can improve their restaurant operations and efficiency. 

Risk management tools and technology make it possible for businesses to increase their visibility and address each situation head-on. 

The benefits that risk management technology provides include: 

Easier Monitoring

It’s possible to report risks with only a few clicks when using risk management technology. The technology also makes it possible to consolidate reports from various project teams. 

Surface Trends

Manual risk management processes often lack the ability for historical reporting. However, risk management technology makes it possible to have historical reporting and forward-looking data. This makes it easy to identify possible trends. 

Real-time Information

Individuals and teams will have the ability to report different activities in real-time. With real-time information, businesses can avoid lag times between reporting actions and receiving reports from the appropriate party. 

Easier Escalation

Risk management software allows employees to escalate risks as needed by flagging the problem and sending it to the appropriate team or individual. This makes the risk a top priority which allows it to be addressed in a timely manner. 

What Are Restaurant Industry Risks?

Restaurant industry risks refer to different exposures that restaurants have to factor in since they can lower their profits or even cause the business to fail entirely. The restaurant industry risks are anything that poses a threat to the restaurant’s ability to reach its financial goals.

It’s common for restaurant owners to take on large amounts of risk when starting their businesses in order to follow their dreams. This makes them responsible for damage or accidents that occur along the way and when serving customers.

Working in a restaurant comes with potential risks and hazards. These include daily occurrences such as slippery floors, open flames, and sharp knives. 

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10 Risks in the Restaurant Industry

As with any industry, businesses in the restaurant industry face many risks.

Ten risks in the restaurant industry

1. Food Storage

When purchasing food in a restaurant, it’s important to stretch those items as far as possible. This will help minimize daily costs and reduce food waste. However, doing this is only possible with proper food storage.

Restaurants will likely rely on different food preservation methods such as the use of walk-in freezers or serving stations. This helps with food safety and freshness.

Practicing proper food storage techniques is a good form of risk management. It can eliminate food contamination, waste, and spoilage. 

2. Insufficient Cash Flow

Most businesses share the common goal of becoming profitable, and it’s not different for a restaurant business. However, underestimating the time a business needs to become profitable is where many business owners go wrong.

There are many scenarios that can lead to failing to raise enough capital. In fact, many businesses may thrive for an extended period of time before failing to generate revenue that will cover restaurant expenses and operational costs.

3. Restaurant Equipment

It’s common for restaurants to rely on different equipment to service their customers. This includes various cooking appliances, refrigerators, freezers, and ovens. 

If this equipment breaks down or is damaged, the restaurant will likely experience some form of interruption. This kind of problem may even lead to prolonged closures. 

4. Employee Injuries

In the hospitality industry, there is a great risk of employee accidents and injuries. 

Employee injuries include:

  • An executive chef or sous chef cutting themselves while chopping fresh produce
  • Employees slipping and falling due to slippery floors
  • Kitchen workers suffering a back injury while carrying or unloading supplies

It’s important to have consistent employee and workplace safety training due to the number of situations restaurant workers are exposed to. Thorough employee onboarding and training will also help reduce the risk of workplace injuries. 

5. Licensing and Certifications

Most businesses will require some kind of licensing or certification in order to legally operate. Failing to obtain and maintain the necessary licenses and permits for your business may result in a number of complications including fines. 

For a restaurant business, the common licenses and permits that are required include a liquor license, bartending license, or food handler’s permit. Be sure to keep all of your licenses and paperwork up to date to avoid similar risks. 

6. Property Damage

If you run a brick and mortar restaurant, your business will be prone to potential property damage risks. These can include fires or break-ins. 

Restaurants are commonly targeted by intruders due to assets such as high-end equipment and on-site cash. Taking the necessary precautions to protect your business from break-ins, like setting up a security system, is ideal. 

7. Poor Marketing and Brand Management

When opening a business, you’ll likely have to write a business plan. Within your restaurant business plan, you should include a marketing plan with different restaurant marketing strategies

Restaurant marketing done right helps businesses stand out from their competitors. The restaurant industry is highly competitive and developing a solid restaurant marketing plan allows businesses to perform well. 

Effective marketing campaigns may lead to an increased amount of customer acquisition and eventually, customer retention. You should regularly manage and improve your marketing campaigns in order to keep up with the latest trends and strategies. 

8. Customer Injuries

As soon as a customer enters your restaurant or steps foot on the premises, you’re responsible for their safety. Most restaurants have a lot of foot traffic which can increase the risk of injury. 

Such risks may stem from spilled drinks or chairs in the middle of the walkway that may cause a customer to trip and fall. To avoid these risks, you need proper risk management practices in place. These include maintaining regular clean-up efforts and quick response times.

9. Staffing Shortages

Since the start of the COVID-19 pandemic, businesses have seen an increase in staffing shortages. Some businesses were forced to permanently close their doors due to a lack of staff. 

Staffing shortages will always be a risk, pandemic or not. This also brings up the risk of an increase in labor cost which may be an additional factor to such shortages.

10. Cybersecurity

When running a restaurant, you may not think you’re a target for cyberattacks. However, cybercriminals target restaurants and their payment processing practices. This is because restaurants tend to process large volumes of debit and credit card transactions and hold onto the information.

It’s common for improperly trained employees to fall victim to phishing scams, viruses, malware, and ransomware. In order to practice proper risk management, restaurants may consider offering separate Wi-Fi options for their guests to use instead of company Wi-Fi.

Investing in cybersecurity precautions can help avoid cyberattacks including credit card fraud. This will protect your business and your customers. 

5 Tips To Minimizing Risk

As a business owner, you can work on reducing potential business risks. 

Five ways to minimize risk include:

  1. Get insurance. Insurance protects your business from accidents, including natural disasters. This is similar to eCommerce business insurance
  2. Limit your loans. When starting a business, many people will take out loans to secure enough capital. This is commonly done for a restaurant business, catering business, chocolate business, and more. While loans may help your business, they also pose risks. If you can’t avoid taking out a loan, look into securing a manageable loan with low interest. 
  3. Hold onto important documents. Keeping track of important documents pertaining to your business is essential. Such documents include sales transactions, tax payments, and operational costs. 
  4. Build a solid reputation. Developing a good business reputation is important as it allows you to build trust with your customers. 

Do I Need a Restaurant Risk Management Plan?

Having a restaurant risk management plan in place will help you plan for the worst. It will help you understand the possible risks your business will face and allow you to prepare ways to minimize their impacts. 

Most restaurants will have various daily operations that they follow. However, one of their main goals should be to avoid accidents and incidents as much as possible. Planning ahead with a risk management plan will help to lessen the impact of each risk. 

7 Things To Include in a Risk Management Plan

There are different ways you can avoid accidents in the workplace. Below are seven steps to include in your restaurant risk management plan. 

Seven points to include in your restaurant risk management plan:

1. Follow Health and Safety Codes

Food industry businesses, such as restaurants, are subject to regular health and safety inspections. All employees, restaurant managers, and restaurant owners must understand and comply with health and safety laws. 

The most commonly regulated areas include:

  • Employee hygiene. All employees must follow strict hygiene practices. Such practices include regular handwashing and the use of appropriate equipment when handling food including hairnets and gloves. 
  • Cleaning restaurant equipment and surfaces. Cleaning the kitchen and dining areas on a regular basis is important. All equipment that comes in contact with food and drink must also be spotless. This includes bar glasses, plates, and utensils. An easy way to keep up with cleaning responsibilities is by using a restaurant kitchen cleaning checklist and keeping the necessary cleaning supplies in stock. 
  • Food storage. A way to ensure food safety is to use a food safety system and store food properly. This will also help reduce food waste. 
  • Safety equipment. Keeping safety equipment on hand will help you act fast in case of an emergency. Such equipment includes a fire extinguisher. 

2. Maintain Restaurant Equipment

Restaurants rely on different kinds of equipment on a daily basis. Such equipment will likely help with proper food storage and operational efficiency. Maintaining this equipment with proper maintenance and troubleshooting will reduce business risk. 

3. Provide Regular Employee Training

Employees are a huge part of a business and as a restaurant owner, chances are that you won’t be able to keep your eyes on everything at once. That’s where your trained employees come in. 

Properly training your employees will give you peace of mind knowing that your business is in good hands. It’s important to provide continuous training to further educate and refresh their knowledge of specific practices and procedures. This will ensure a safe working environment.

Common training topics to cover with restaurant employees are:

  • How to safely lift and carry heavy objects
  • How to respond to a robbery
  • What to do in case of a fire
  • Serving alcohol responsibly 
  • Properly handling, preparing, and storing food

4. Keep Your Workplace Clean

One of the most common risks in a restaurant is a slip and fall accident. It’s common for employees and customers to accidentally spill drinks and food. 

It’s crucial to stay on top of such accidents and act quickly in order to minimize the chance of future accidents. One way to do so is to immediately clean up the spill and set up the appropriate signage, including a wet floor sign. 

5. Disclose Food Allergen and Nutrition Information

Keeping your customers informed is a way to keep them safe. A way to do this is by disclosing food allergen and nutritional information, This includes providing details about the food’s ingredients as it can reduce the risk of allergic reactions. 

6. Obtain Legal Licenses and Permits

When opening a restaurant, opening a coffee shop, opening a bakery, and opening a food truck will require you to obtain various licenses and permits. Common licenses include a business license, a food service license, a driver’s license if you provide food delivery services, and a liquor license. Be sure to familiarize yourself with how to get a liquor license

7. Have Insurance

Business insurance will protect you and your business in the event of unprecedented accidents and injuries. The ideal kind of insurance should cover your business and your employees. It provides a better work environment and reduces the risk of getting into legal trouble.

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Managing Risk in the Kitchen

As a food business, you’ll likely have employees working in the kitchen at some point. It’s your responsibility as a restaurant owner or manager to prevent injuries from happening. A way to do this is by creating a safe working environment.

Reduce the Risk of Cuts

In the kitchen, one of the most common injuries that may take place is a cut, puncture, or laceration. 

Four ways to reduce the risk of cuts in the kitchen are:

  1. Provide employees with cut-resistant gloves to protect their fingers and hands.
  2. Create an ideal kitchen layout for your restaurant.
  3. Train kitchen employees on proper equipment handling including proper knife handling.
  4. Use non-slip mats underneath the cutting boards.

Minimize the Risks of Burns

Most kitchens will have ovens, stoves, and fryers. This equipment will get hot and may cause burn injuries if not handled properly. To prevent and minimize burn injuries, employees must be required to wear long sleeves, long pants, and closed-toed shoes. It’s also important to keep the kitchen organized and free of debris and clutter. 

Managing Health Risks

Customers are what make a business successful. Aside from offering excellent customer service and having a loyalty program in place, the food is what will likely keep customers coming back.

This means that it’s important to ensure positive experiences and avoid potential allergic reactions or food poisoning. These risks will hurt your business reputation and may result in a financial loss.

Six ways to manage health risks in your restaurant include:

  1. Follow food safety protocols.
  2. Train employees to handle food safely
  3. Avoid cross-contamination by keeping an organized and clean kitchen.
  4. Enforce regular employee handwashing practices.
  5. Strategically design your menus to include necessary allergy information. This includes notices if the food contains eggs, dairy, or nuts.

Managing Cyber-Related Risks

In a world where technology is becoming more and more prominent, hackers are also getting even more sneaky when stealing personal information. Restaurants tend to store valuable information such as customer credit cards and employee payroll information. This is what makes them a target for hackers. 

Four ways to minimize cyber-related risks include:

  1. Consider adding a Cyber Liability policy to your insurance plan to cover expenses from potential cyber-related attacks.
  2. Limit who has access to sensitive information and documents. 
  3. Develop an organized system to keep track of all billing statements, contracts, and receipts. 
  4. Use a cloud-based POS system for maximum information security.

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